Credit Score

Credit is all about building and maintaining trust in your ability to repay debt. Imagine you are having dinner at a local hometown restaurant. When you receive the bill you realize that you’re short on cash and ask the waiter if you can pay later. The waiter kindly agrees because he/she knows you and trusts that the bill will be paid. However, what if you are not in your hometown and you are a stranger to the waiter, chef, and owner? It is necessary to have an agreed upon way to prove your trustworthiness.

Where your credit score comes from

Today, in the US, there are three key institutions that are responsible for tracking and quantifying your trustworthiness: Equifax, Experian, and Transunion. Together, these three institutions assemble a record of how well you have repaid debt in the past and send this information to two primary credit scoring companies: the Fair Isaac Corporation (FICO) and VantageScore.

Both companies use this information to assign you a credit score ranging from 300 to 850. A credit score between 580-669 is considered fair and a score between 670-739 is considered good. The closer your score is to 850 the better, allowing you to access better financial products with lower interest rates so you won’t have to pay as much back.

However, most lenders only look at your FICO score when assessing your creditworthiness, so be sure to use any free VantageScore reports you might get from websites like mint.com and creditkarma.com only as a guideline.

Taxpayer Identification

The three credit bureaus listed above, banks, and other lending institutions need a way to identify individuals and track credit information across all systems. The Social Security number emerged as the means to this end.

Whenever you complete a credit card application, the lender will ask for your Social Security number to look up your credit report.

Lenders also use your Social Security number to report payments, balances, and other credit details. Businesses use an EIN, or Employer Identification Number, for this purpose.

Individual Taxpayer Identification Number (ITIN)

But what if you don’t have a Social Security number? In that case, you need an alternate tax ID, such as an Individual Taxpayer Identification Number (ITIN).

The ITIN is a social security number alternative used by the IRS to account for tax returns and tax payments of resident and non-resident aliens, regardless of immigration status. You can build credit and access your FICO credit score using an ITIN.

We will go into more detail about ITIN and how to apply for one in the following section: Building Credit History.